Early involvement by loyal users does not guarantee a large pool of engaged retail investors.
Initial public offerings are an exercise in raising profiles as well as funds. Reddit has tried to earn bonus points with its community by offering loyal users the chance to participate in its long-awaited initial public offering. But early Redditor involvement does not guarantee a large pool of engaged retail investors.
Reddit first made plans to go public in 2021. Delay has been costly. An IPO price of $34 a share is a sizeable step down from the $61.79 per share that Reddit used in a September 2021 convertible stock offering. Shares opened up 38 per cent on Thursday, but Reddit’s equity value is still below its last valuation as a private company.
Within the IPO, the San Francisco social media site reserved 1.7mn shares for Reddit users, friends and family. There were conditions attached. Users had to have set up accounts before January 1 2024, so no carpetbaggers allowed. They had to be in “good standing” too — ie be popular contributors to Reddit’s online communities.
Reddit is not the first company to offer this sort of deal. Airbnb did the same for its hosts, while Uber gave drivers the chance to participate in its IPO.
Redditors can be an impressive market force, raising prices for so called meme stocks like GameStop. But the size of this deal — equal to about 8 per cent of shares on offer — curbs that possibility. This is in line with Airbnb, which set aside about 7 per cent of its IPO offering for hosts. The public now has 15 per cent of Airbnb shares available for trading. At Tesla, without a similar feature, the public holds nearly 43 per cent. At GameStop they have 58 per cent.
Not only was the offer to Redditors relatively small but so was the float. Filings show that after the IPO, existing stockholders will still have 86 per cent of common stock outstanding and most of the voting power. Once you include the voting proxy arrangement that co-founder and chief executive Steve Huffman has with other investors, he will account for about 46 per cent alone.
Offers to users are better thought of as a PR exercise and a chance to mend fences. Airbnb’s deal came after it was criticised by hosts for allowing guests to cancel with a full refund during the pandemic. Uber’s coincided with a strike by drivers seeking better working conditions.
Reddit’s follows user backlash at the company’s decision to charge for access to its data. It may work, though the Reddit community is notorious for casting a critical eye on the company’s leadership. But it is too small to turn Reddit into a meme stock.
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